Help from friends

1 April 2009 By Martin Hutchinson

Its wish to have the buffer of a $47bn IMF credit line makes sense. It always hated tied loans, which came with gratuitous IMF or US advice. Mexico s economic policies need changing, but this time it can get help from less patronizing sources: Latin friends Brazil and Chile.

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The Mexican government announced on April 1 that it intends to apply for a new flexible credit line from the International Monetary Fund in the amount of $47bn. Countries applying for the line must satisfy a number of criteria, including sound pubic finances, low inflation and a stable banking system.

The IMF's flexible credit line programme is designed for countries with strong fundamentals in crisis situations; it assures them of access to extra funds as needed with no ongoing conditions, provides a 3.255 year repayment period and allows drawdown flexibility.

The Economist panel expects a 2.6% decline in Mexico's GDP in 2009 and 1.4% growth in 2010. Mexico's consumer price inflation was 6.2% in the year to February 28, while its threemonth interest rate is 6.5%. Mexico's external debt was $181bn in December 2008, 17% of GDP. Mexico's oil production fell 10% in February from a year earlier, while its oil exports fell 13%. Overall exports in 2008 were up 7.3% over 2007 while imports rose 9.5%.

Remittances by Mexican workers living overseas fell 3.6% in 2008 at $25bn or 2.3% of GDP, the first decline since records began in 1995.

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